Sunday, August 30, 2015

“If You Had A Big Idea, Would You Keep It To Yourself?”

Part I – Pharma's Problem.

In 2014, Tufts University estimated that $2.6 billion are required per new drug gaining market approval and only 7% succeed in “a process often lasting longer than a decade.” The rapidly evolving diseases and resistant pathogens seem all the more frightening. The current development process neglects the vulnerable for lack of economic incentives. Human clinical trials also tend to burden the poor in a vertically integrated large cap-player market raising ethical concerns. The development process is also irrational in some instances. Bad drugs enter the market because of regulatory approval ease, not for their therapeutic needs. Add to that, the clinical trial process often lacks transparency jeopardizing treatment decisions downstream. Pharma, in some cases, is misinformed and inefficient. If nothing is done, cost and time for development will continue to rise. Consensus has been that the industry needs change. The economic goal is to cut development cost and time, but it is also a wonder if we can also enable rational market and treatment decisions, enforce quality and ethical standards, and deliver to the under-served at the same time.

Open innovation has been trending popular as a path forward in pharma with proven results. According to one consultant group, drugs sourced via open innovation triple their chance of later phase clinical success (Deloitte, 2015). Companies like Eli Lilly, Novartis, Pfizer, AstraZeneca have been leveraging open innovation (e.g., outsourcing, joint ventures, and permissive licensing). Academics are building open access and exchange of research and data, some with “copyleft” mechanisms. Professional analysts have also been producing useful advice helping the industry unriddle open commercialization. All the while, something fundamental about the marketplace is changing. Crowd is converging on-line, sharing resources and information, restructuring global transactions. The Internet has enabled collaborative responses in real time and increased our capacity; there is now a “whole swaths of economic life . . . beginning to move to a different rhythm.”

Part II – Business Model Innovation.

McKinsey & Company recently wrote that business innovation involves identifying and dissecting the long held beliefs about how value is created and reframe the beliefs to innovate. One of the most long-held belief in pharma is the ownership concept of exclusivity in patents. But it is difficult to put patents under the microscope. The mere suggestion to re-examine patent's role in pharma development is controversial. It often draws criticism and fear of losing private sector fundings. There is also a lucrative cottage industry of non-market participants (e.g., patent trolls), which likely will impact the conversation. But any meaningful dialogue about opening therapeutics must involve a closer look at the patent system.

In an economic sense, patents are especially problematic for pharma. Patents limit a therapeutic business model's life-span usually to 10 to 12 years. Upon patent expiration the technology enters the public domain. Developers have to lean-out fast and that's becoming ever more challenging in a global market place. Patents are also capital intensive (before and after the grant of patent). It silos information and inhibits scientific progress. There are also anti-trust and price fixing concerns with the patent-driven vertical integrations that naturally occurs. To further complicate things, patent laws, regulations, and enforcement mechanisms also lag behind developmet and market trends. There is also no guarantee that patents will translate to market dominance. In the United States, Inter Partes Review (“IPR”) jeopardizes even patents that have been granted. In developing jurisdictions such as India and China, patent enforcement often is wildly unpredictable and costly to defend (e.g., Gilead's struggle with its patent for hepatitis treatment in China and India).

Reliance on patents can also hinder the industry's growth. According to a 2015 industry report, bioengineered drugs continue to increase their market shares against conventional drugs. But patenting these biologics will be more difficult and traditional drugs. This type of therapeutics also involves, in many instances, laws of nature or natural phenomena which are excluded from patent protections. Patent examiners and courts will struggle as they have when the information technology (IT) industry first began to challenge the patent paradigm. This will put the market sector on elevated risk platform. Investors will stay off early R&D. This will further starve the capacity needed to actually engineer biologic based therapeutics. The success of this biopharma market sector, and the industry generally, will likely depend on a reframe of how we understand and leverage patents and other intellectual property types in the various emerging open innovation models.

Part III – The Reframe.

Patent and ownership have become ubiquitously linked in our conversations about therapeutics. Development often starts with patent leveraged investments to conduct clinical trials. The patent grows in value with positive trial results. Once regulatory approval is granted, more value is added to the patent. This allows for additional investments for manufacturing, advertising, and other operational expenses. This is our current model, but it is premised on the idea of scarcity—an antiquated frame of mind from our understanding of real and tangible property ownership. Yes, it is true there are only so much land in the world and it is important to exclude others from exploiting the one you own. But with intellectual property, the reverse is true: there is an abundance of possibility of ideas when we put our intellectual capacity together.

Another important observation ti make here is with respect to the valuation question. In a complicated transaction involving very expensive and risky human clinical trials, regulatory approval, and manufacturing, just exactly how does one value patents along the way to “de-risk” the process? Is it by excluding others from the development process, shift the risks to large-cap players, delay the risk to more mature developments, and starving the development pipeline? Or does it make more sense to collaborate? In modern accounting, valuation is highly depended on the subjectivity around the product's exclusivity of market. What happens if exclusivity is removed and replaced instead with collaborative capacity?

Disease is an old enemy, but bioengineered therapeutic options have only recently been explored (e.g., Amgen's T-VEC). To reframe how we work and to fully leverage biopharma developments meeting the increasing demands, a public interest open community that is self-organized and self-governed is needed. Finding a sustainable balance between self-interest and ecosystem health is key (see Howard Rheingold, TED 2005). The purpose is to enable distribution of biopharma knowledge, data, and developments freely and globally. The goal is to develop viable therapeutics in less time and for less cost compared to the current proprietary patent-driven model. It is disruptive, certainly; but it can also be distributive. It is disruptive to the current commercial model and incentivizes open science and open access for the industry. The distributed market model connects the “publish or perish” academic culture with practical support structure and application development opportunities to utilize the rapidly accumulating knowledge set. An optimist would believe the open-source markets will adjust to a rational equilibrium based on the law of economic efficiency and lowered cost of information. Adopting the open therapeutics model means a company is indeed an optimist. But even for a pessimist, open-source offers undeniable benefits.

Part IV – The Shared Information Economy for Saving Lives.

“Open everything,” a friend once joked. But this is not about whether you want to open or close a business model. The key is whether you believe in finding a balance between protecting intellectual property rights and using those rights to enable collaborative problem solving. Once a market participant sees this paradigm and sees open as a spectrum of free market choices, superficial barriers (regulatory jurisdictions, language, culture) tumble. It is then a matter of finding a good opportunity, finding the lowest cost provider, leveraging existing intellectual property rationally, copyleft, and participating in the therapeutic development process fully—together.

Open science and open data exchange is the driver of this process because scientists and researchers holds the key to the therapeutic development process: knowledge, know-how, resources, connections, etc. They can chose to turn the key right excluding others and go down the patent-based commercialization route—a path of billions of dollars in investment, decades in development, a small chance of successful market entry, to then face a limited patent period demanding rapid lean-out of production and product delivery. Or they can turn the proverbial key left (copyleft) and see what the crowd is capable of accomplishing.

If open therapeutics community is to succeed, it must find and connect the capable and responsible research scientists around the world with innovators who've turned that copy key left to the public. The community must include engineers and vendors who can help design and deploy strategies to promote fair, reasonable and non-discriminatory market development and distribution of therapeutics. Open access to science and open exchange of data are only the first steps. Open reproducibility should improve quality and safety. Open standards should improve efficiency and emergency demand response time. Open trials should improve overall system integrity. All of this coming together to make a community of open therapeutics thrive, like Linux.

For an advocate of human progress, open therapeutics is a path forward with SynBio-based innovations. A friend once said about open therapeutics: “It is social engineering if you really think about it. Let's call it for what it is. But in the end, this is about saving lives.” Undoubtedly, it is. It is for supporting a good cause and empowering collective actions to respond to crisis, unless we squander the opportunity for a tragedy of the commons type of ending. To the curious mind, open therapeutics should strike a chord as a better alternative worthy of consideration. It should be self-organizing with the freedom to innovate. The possibilities for solving problems are endless. We hope the practitioners of the open-source way will be the pathfinders of our endeavors and the lifeblood of open terapeutics. If we can save just one life, this will have been worth our time.

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